- Consumer prices in March will be released Wednesday.
- Their performance will determine when the Federal Reserve cuts interest rates.
Crypto investors are bracing for a surprise when US inflation data for March is released on Wednesday.
If consumer prices don’t fall as much as hoped, the Federal Reserve may signal a delay in interest rate cuts and worse convey the sense that the benchmark cost of capital should remain steady at 5.5%.
Interest rate hawks are already emboldened to keep things status quo after the US economy added a robust 303,000 jobs last month.
This would be a bummer for Bitcoin and equities investors because their “risk-on” assets tend to climb when rates fall.
Investor sentiment
Fed officials keep a close eye on the Consumer Price Index as they weigh whether they’ve done enough to get inflation back within its 2-3% target range.
That will either bolster confidence or harm investor sentiment for cryptocurrencies and the broader markets in the short term, according to Ryan McMillin, chief investment officer at crypto fund manager Merkle Tree Capital.
“US inflation data could roil markets,” McMillin told DL News.
High interest rates
Interest rates remaining high is bad news for crypto because elevated rates usually scare away investors from tapping into riskier assets like Bitcoin.
They are more likely to invest in safe haven assets like gold, which has been on a tear this year.
With less demand, prices usually go down — partly explaining why Bitcoin has mostly traded below $70,000 for the past month.
While Fed Chair Jerome Powell has hinted that more rate cuts are coming, it won’t happen at the central bank’s next meeting on April 30 and May 1, Federal Reserve Bank of Cleveland President Loretta Mester said last week.
The next opportunity for the Fed to announce cuts will be at its June 11 and 12 meeting.
In the meantime, inflation data must bolster the case for a loosening of monetary policy, Mester said.
‘Slight uptick’
Estimates suggest a “slight uptick” in the Fed pushing rate cuts further out this year, McMillin said.
“We could see the first cut pushed out from July to September,” he added.
The central bank’s September meeting represents the “last chance” for it to cut rates in 2024 as the Fed will likely assume a neutral stance during the US in November, McMillin added.
CME’s FedWatch Tool shows traders anticipate rates to remain within the 5.25%-5.50% range ahead of the next Federal Open Market Committee on May 1.
Analysts remain divided on June’s forecast — between a 25 basis point decline, or 0.25%, and no change.
Crypto market movers
- Bitcoin jumped by 4.4% overnight and is trading at $72,300 on Monday morning.
- Ethereum skyrocketed 6.7% to $3,600.
What we’re reading
- Google sues Chinese app developers, claims thousands duped in pig-butchering scam — DL News.
- FTX Bankruptcy Estate Sells Majority Of $2.6 Billion Solana Token Hoard — Milk Road.
- Aave Chan Founder Proposes ‘Fee Switch’ as DAO Profits Top $60 Million Annually — Unchained.
- Jury Finds Terraform Labs And Do Kwon Guilty Of Crypto Fraud — Milk Road.
- Goldfinch’s third default shows just how risky undercollateralised crypto lending can be — DL News.
Sebastian Sinclair is a markets correspondent for DL News. Have a tip? Contact Seb at sebastian@dlnews.com.